Working Papers

We examine whether a large shareholder can alleviate conflicts of interest between managers and shareholders through the credible threat of exit on the basis of private information. In our model the threat of exit often reduces agency costs, but…

The television game show The Price Is Right is used as a laboratory to test consistency of suboptimal behavior in an environment with substantial economic incentives. On the show, contestants compete sequentially in two closely related games. We…

The real options framework has been used extensively to analyze the timing of investment under uncertainty. While standard real options models assume that agents possess a constant rate of time preference, there is substantial evidence that…

Traditional economic analysis of markets with asymmetric information assumes that uninformed agents account for the incentives of informed agents to distort information. We analyze whether investors in the stock market internalize such incentives…

How do rational firms respond to consumer biases? In this paper, we analyze the profit-maximizing contract design of firms if consumers have time-inconsistent preferences and are partially naive about it. We consider markets for two types of…

This paper examines the information content of the announcement of a sale of a borrower’s loans by its lending bank. We find significant negative stock returns for the borrower on the loan sale announcement, particularly for sub-par loan sales,…

This paper studies how collateral affects bond yields. Using a large dataset of public bonds, we document that collateralized debt has higher yield than general debt, after controlling for credit rating. Our model of agency problems between…

We analyze institutional allocation in initial public offerings (IPOs) using a new dataset of US offerings between 1997 and 1998. We document a positive relationship between institutional allocation and day one IPO returns. This is partly…

We propose a boundedly-rational model of opinion formation where agents are subject to the phenomenon of persuasion. We argue that persuasion whereby repeated exposure to an opinion has a cumulative effect on an agents beliefs is pervasive and…

We analyze a model where an altruistic sender, who may or may not be informed, broadcasts one of a finite set of messages to rational receivers. If broadcasting is costless and the sender is rational, there is an informationally efficient…

Gallant, Hansen and Tauchen (1990) show how to use conditioning information optimally to construct a sharper unconditional variance bound on pricing kernels. The literature predominantly resorts to a simple, sub-optimal procedure that scales…

We analyze a model of voluntary disclosure by firms in financial market and the desirability of disclosure regulation. In our model firms choose the precision of their disclosure. Disclosure is costly and has private and social value. First we…

It is extensively documented that underwriters often ” stabilize” or ” support ” initial offerings ( IPOs). However, little is known about the types of IPOs that are supported, and more broadly, how price support impacts the IPO process. We…

It is widely believed that correlations between international equity markets tend to increase in highly volatile bear markets. This has led some to doubt the benefits of international diversification. This article solves the dynamic portfolio…

This article provides a stochastic valuation framework for bond and stock returns that builds on three different pricing traditions: affine models of the term structure, present-value pricing of equities, and consumption-based asset pricing. Our…

A number of theories have been proposed to explain the medium-term momentum in stock returns identified by Jefadeesh and Titman (1993). We test one such theory based on the gradual-information-diffusion of Hong and Stein (1997)—and establish…

Foreign portfolio flows may reflect deep changes in the functioning of an emerging market economy and its capital markets. Using a database of monthly net U.S. equity flows, we investigate the relation of these flows to the behavior of equity…

Measuring the integration of world capital markets is notoriously difficult. For example, regulatory changes which appear comprehensive may have little impact on the functioning of the capital market if they fail to lead to foreign portfolio…

Traditional approaches to valuing equities have largely focused on the Dividend Discount Model. It may be hard to reliably estimate dividend processes in small samples and market participants focus primarily on earnings and other accounting…

Regime-switching models are well suited to capture the non-linearities in interest rates. This paper examines the econometric performance of regime switiching models for interest rate data from the US, Germany and the UK. There is strong evidence…